Railways up in arms against new GST rates for their container service

Posted by Daily Shipping Times on 27-06-2017        Tweet

NEW DELHI: Railways will seek a reversal in the GST rate fixed on movement of container cargo by rail as the movement by road ways will work out fifty per cent less expensive under the new dispensation. This creates an unfair price advantage for the road sector for the same service and threatens to drive railways out of the container cargo business.

The GST regime proposes to impose a 12 per cent tax on container cargo moved by the railways whereas the same container moved by road will attract only 5 per cent GST.

Railway Minister Suresh Prabhu may meet Finance Minister Arun Jaitley, official sources said, to discuss a possible reversal of the rate as the rate difference negates any competitive edge the railways might have had.

At this rate railways may have to wind up Concor since its operations will become unviable source said.

In the new tax regime, railways will charge 5 per cent GST on container/logistics companies, including its own Container Corporation of India (Concor) on the fee these companies pay to railways for the haulage.

The tax the cargo movers will levy on their clients if the containers go by railways will be 12 per cent, whereas the same carried on trucks by road will attract 5 per cent.

In the existing tax ecosystem, the tax burden on the client in road sector is 4.2 per cent, which will rise to 5 per cent post GST — a marginal rise. For railways, the same will shoot up from the current 5.6 per cent to 12 per cent

Railway Ministry has calculated that Concor alone is slated to lose out between 30 and 60 per cent of its business eventually if the proposed rates prevail. The size of its business might also shrink, sources said.

Railways have pinned hopes on the container cargo business for future expansion of its footprints in white goods sectors. The new GST rate threatens to upset those plans, source said.

Railways has given licenses to 17 container operators, known as intermodal service providers to own the container trains (rakes), which are just hauled by an engine on tracks owned by Railways for which the transporter charges a fee.

As per calculations, the sector’s around Rs 10,000 crore annual business will attract a GST liability of Rs 1,200 crore as opposed to Rs 560 crore now, making it a less attractive choice.

Railways are unhappy that the GST council failed to give due weightage to their viewspoint and how rates proposed by them will ruin the container segment of the railways.